[temp check] Premium fee .eth

DAO-Wide Temp Check
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Hey Frens :slight_smile:

Yesterday I tweeted about this (1,2,3,4). And although I got some great replies by @184.eth and others, my question still hasn’t really been answered, so I thought I’d write a temp check. To hear the opinions of delegates and other interested people.

Currently when a .eth expires, after it goes through a 90 day grace period, it becomes available for general registration again. To prevent this from becoming a race, a ‘temporary premium’ is attached that starts at $100 million and exponentially decreases to zero over 21 days; ‘the dutch auction’. This premium fee goes to the ENS treasury just like the yearly registration fee.

I am curious, what is the reason that ENS receives the proceeds of the dutch auction instead of past owners? Wouldn’t that be more fair? If ENS gets to sell my .eth if I forget to renew it, doesn’t that mean that ENS owns it a little bit too? And shouldn’t I be the owner?

For context, ENS revenue from premium registration fees in 2023 was $3.84m (in eth) over 36k names, in 2022 $9.08m over 255k names and in 2021 $2.01m over 6774 names. The total revenue of registration + renewal fees in 2023 was $18.9 million, in 2022 $50.2m, in 2021 $26.1m. I’m unsure how correct this info is tho, the source is ENS on dune, but revenue data on steakhouse differs. Anyway, its not nothing.

In order to prevent me from registering all the possible .eth names, registration fees exist. A consequence of those registration fees is that names expire. But not that when a name expires it goes to auction, of which the proceeds go to ENS. That’s just another rule. And for what?

According to the ENS Constitution the only way for ENS to justify fees, presumably because fees infringe upon name ownership, is if they “prevent the namespace from becoming overwhelmed with speculatively registered names. A secondary purpose is to provide the DAO with enough revenue to fund ongoing development and the improvement of ENS”. So, does ENS receive premium fees because if the owners would receive them instead there would be overwhelming speculation? And why would that be the case?

Screenshot 2024-04-04 at 12.17.06
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Or is that wrong framing? Is ENS receiving the premium fee simply not infringing upon name ownership? I feel like ENS has at least the responsibility to justify this, what stops ENS from arbitrarily introducing new fees otherwise, if there are no requirements for raising them? I have only been able to find one mention, by @slobo.eth, of this choice in the many topics about the dutch auction(1, 2, 3) on the forum: “Given a choice between intermediaries profiting of expiring domains and ENS profiting of them, it is preferable that ENS does.” But even if that is preferable, is ENS profiting from premium fees in the spirit of the ENS Constitution?

To prevent gaming of the grace period through short registrations and reregistrations I would propose for only the amount above the value of the grace period to go to previous owners. So everything below ~$160 for 3L, ~$40 for 4L and ~$1.25 for 5L still would go to ENS. Seems like a clean option.

Love to know what others think. gm

broke.eth

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Thanks for bringing this up @broke.eth :pray:

We /@NameSys were researching this for long time but we don’t have bandwidth to open new front on governance side. If ENS DAO is ready to fix this premium extraction there’s few ways to do it…

  1. Burn : Simply buy $ENS token with >50% of premium funds and burn it. ENS DAO takes remaining.

  2. Share : Send/airdrop 50% of premium in $ENS token or ETH or USDC denomination to ex-owner in L2s. To prevent gaming only >= 1 years of registration with active address and other text/contenthash records should qualify. This will also help cleanup squatters from ENS by giving them one last chance to get some premium value for their domains at risk of letting it expire.

  3. Mixed : burn 33% in $ENS, send 33% to ex-owner & ENS DAO takes remaining 34%

:vulcan_salute:

“We will create a civilization of the Mind in Cyberspace. May it be more humane and fair than the world your governments have made before.” - A Declaration of the Independence of Cyberspace, 1996

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Hey @0xc0de4c0ffee thanks for the thoughts and interesting you’ve thought about this already! Sending on L2 is a great idea, if it can’t go wrong. I was thinking about an address record ‘dutch auction’ so if you forget to renew or die, you could have another address set to receive the premium, of family orso. Those are some good ideas. It’s just that the only reasons that justify ENS taking fees is if they prevent the namespace from becoming overwhelmed with speculation or so ENS has enough revenue. I don’t see how your proposals couldn’t be suggested for royalty fees as well-- buy $ENS with 100% or 50% or 33% of secondary sales, or that percentage goes to ENS. What is the justification for ENS taking any part?

The new system would be: when a 3L .eth expires and sells for $1000 at dutch auction, ~$840 goes to the previous owner and ~$160 to ENS. If it sells for $100, $0 goes to the previous owner and $100 to ENS. This prevents speculators from registering names for a very short period like a day, letting them expire and reregistering them again at auction for a day, rinse repeat. That would drastically decrease registration costs as they’d get the full premium back and 111 days ‘for free’ each time they register. The grace period is fixed at 90 days and there is no minimum registration length. This already also allows speculators to register a name for a day and try to sell during the 90 day grace period.

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Why not auction your name on an existing marketplace? You’d retain ownership if you didn’t like the highest bidder’s offer.

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Hey Coltron thanks for engaging I really appreciate it!

Many people forget to renew their names. Or don’t renew for all sorts of reasons. These people could be broke(can’t afford to renew), stupid(forget to renew a premium name), busy, ignorant(don’t know its value/how to/should renew), dead or disabled(in crisis or accident). They might not be able to sell on the secondary market and this rule specifically discriminates against them. Why don’t you think these people deserve the proceeds?

I don’t directly see how the option for someone to sell on the secondary market justifies taking the proceeds if they do not sell it there.

Edit: I just realized that in my original post I forgot to link to @slobo.eth’s comment I was referring to. And I am not able to edit that post anymore so adding here.

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I’m not convinced it specifically discriminates against anyone since the rules are applied to everyone who opt-in to registering a name for a set amount of time.

You could argue that fees themselves are a form of regressive tax, but this problem isn’t unique to the ENS system. It applies to any fee paid using a currency that relies on scarcity¹ to establish value.

¹Edit: By this, I mean some will always have more than others.

Because if it’s in the “temporary premium” period, they no longer have ownership over name.

The rules are very impersonal. Name ownership begins when you register the name for a set amount of time, and ends when that set amount of time expires. There is even a grace period where ownership rights are extended to cover the situations you mentioned.

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If the name expired, then it doesn’t belong to you anymore. Anyone is free to do a Dutch Auction of a name they own and retain 100% of the value.

What about people who forgot to renew?

You are absolutely correct it’s something we care about. We encourage people to register for multiple years (you don’t need to “renew” it yearly like a yearly subscription), we allow anyone to extend any name duration, we even give a free grace period in which the name can be renewed for free. A blockchain can’t send you an email reminder, but we encourage marketplaces to build that functionality in (and ENS labs site allows you to add the renewal reminder to your calendar).

I suppose there’s more we can do to reach out to people and I’d love to hear it, but at some point the name must go back to the market. And to avoid it going to a fast sniper we implement the Dutch auction that forces people to wait for the price to drop.

That’s just another rule.

Sure. We could add a rule to change it and share the dutch auction with the previous owner. But also I’d argue the protocol doesn’t owe anything to the person who owed it before: you bought the rights to the usage of the name for X years, you got X years + 90 days already.

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Some good points made tbf :slight_smile:

But the only reason why the name “doesn’t belong to you anymore” is because ENS has implemented renewal fees to prevent speculation and designed the contracts like this. which has also led to people unintentionally letting names expire.

I would actually say that I have never really OWNed the name if I do not get the proceeds from the sale if I forget to renew it. Merely some form of renting. What stops ENS from taking the proceeds from secondary sales under the same logic. ‘They don’t own the name anymore’. Yeah but they just did. It is arbitrary and I would say unfair,

and it does discriminate against the unfortunate. A rich person or an aware speculator are way less likely to have this happen to them (letting a name expire that subsequently sells at a premium).

Explain this to a dude who bought their identity for $20k and accidentally let it expire after a year. To find out ENS auctioned it and kept the proceeds. Or to a woman that doesn’t want to or cant pay the renewal fee after the DAO increased them. Or someone at war, or any of the other unfortunate circumstances I have described in my previous reply.

But why should the fee go to ENS? Just because the previous owner does not own the name anymore? Nothing else that I ‘own’ works similarly. This requires more justification imo. Especially as the conditions for ENS taking fees are limited. It is not necessary to prevent overwhelming speculation.

The dutch auction prevents gas races no matter who gets the fee.

Previous owners only don’t receive the proceeds of this sale because it was decided like that. Doesn’t mean that is right. I would argue that ENS does owe these people something. What do you guys think about the fifth amendment to the US Constitution? (”…nor shall private property be taken for public use, without just compensation.") also known as the Taking clause (or this). Is that relevant here? Or why not? It seems some do see getting the proceeds from the dutch auction as an aspect of ownership.

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That’s what it is. It has strong property ownerships enforced by contract (the DAO cannot by design, code and constitution take a name from anyone), but it is time limited.

If you want to be nitty picky I’d argue most forms of property are, in fact, rent: what are taxes but the rent you pay in order to have someone with a big gun protect your paper claim to ownership? In this case we were able to replace the gun with code and enforce ownership without any violence. But yeah, I’m digressing too much.

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Good question! We did actually look at sending some proportion of the premium fee to the previous owner when the premium was implemented; unfortunately this isn’t practical onchain because the owner field is no longer accessible on an expired name.

I think either approach is defensible; the fee exists to ensure fair allocation of names, and to ensure the value surplus isn’t captured as MEV in the form of gas auctions or ‘sniping’ to resell valuable expired domains.

I think that this falls within the scope of clause II of the constitution, though “to prevent the namespace becoming overwhelmed with speculatively registered names” is unnecessarily restrictive of the basic goal of using fees as an incentive mechanism, which this is. There’s also a reasonable argument to be made that returning most or all of this premium to the previous name owner would encourage speculative registrations - speculators may register names purely to let them expire, hoping to be paid in the premium auction when the name expires. In that context, keeping this fee is helping reduce speculative registrations.

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I really appreciate you engaging @AvsA but I find this response super disappointing tbh. Or at least, I thought I owned broke.eth… But I guess if I rent it then ENS owns it. Why does ENS call people owners if they’re actually just renting? I have some ownership rights when I’m renting a boat but who cares, it’s still called renting. Name ownership shall not be infringed— but what kind of ownership do renters actually have? Ownership is not some spectrum. Words have a meaning. If this is true then ENS should change that phrasing imo. Pretty misleading for a crypto project specifically, most things around these parts we actually do own.

And why, is .eth ‘ownership’ merely a form of renting? Just because of this unaddressed decision, that slobo.eth remarked, “Given a choice between intermediaries profiting of expiring domains and ENS profiting of them, it is preferable that ENS does.”, and that doesn’t even get a justification now that I ask. Besides that we apparently do not own our .eth, so ENS may do as it pleases. And the reason why we do not own our .eth is because we do not own them, great.

Like I have said before, if the recipient of the premium fee changes the dutch auction remains, ownership still would be time limited, names still cannot get sniped and they still expire.

Property is not rent, properties could have costs. And luckily most societies have property rights so people can defend themselves when those big guns get used to take their stuff… Not sure why you’d pay a tax without justification.

Thank you for the sensible reply @nick.eth. Really :slight_smile: But do you also think that we do not own our names, only rent them?

I always thought that ‘fees are used as an incentive mechanism’ in clause II implied incentivizing the prevention of overwhelming speculation. Fees are always an incentive mechanism, so wouldn’t that be meaningless otherwise? And what does ENS receiving the premium fee instead of previous owners actually incentivize then, if it could be anything?

For what it’s worth, I really do believe actually that the proposed system would not cause overwhelming speculation or even significantly increase it, otherwise I wouldn’t have written this post. People currently already are able to register names purely to sell. And ENS does not take (a part of) secondary sales because of that. And the .eth namespace is not overwhelmed by speculation. If giving the fee to previous owners would attract more speculators that means that the dutch auction must be better than the secondary market, right? Otherwise the amount of registrations by speculators wouldn’t increase. Why would the dutch auction even be better? Or like what is that reasonable argument?

I have thought about other things to possibly prevent speculation even more too but before discussing that it should be clear whether ENS not receiving premium fees even is considered to be a possibility. Or if everybody besides Nick thinks I am being nitty picky and ENS should receive premium fees just because. And if people think we own our .eth or rent them. Personally I still believe that we own our .eth and that any type of fee infringes upon name ownership and thus should be justified according to the constitution :man_shrugging:

The minimum registration length could be increased and the 90 day fixed grace period/ 21 day auction length decreased. Another option would be to stream premiums back to previous owners, locking up speculators funds. Discounting longer registrations as currently proposed by @liubenben. Or like @0xc0de4c0ffee suggested taking an even larger cut. And if ENS really wants to, it probably isn’t impossible to find out who the previous owner of the expired name was.

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Ownership absolutely is a spectrum, and you’ll be hard pressed to find any kind of ownership that doesn’t come with any responsibilities or obligations.

This is exactly why it is ownership - because ENS cannot do as it pleases. The smart contracts define rules that make it impossible for the ENS DAO or anyone else to take your name off you as long as you don’t let it expire - an asbolute, inviolable right over your property.

The point of that clause is to prevent the DAO from charging fees whose purpose is not to incentivise the correct behaviour of the system. For example, the DAO could impose a fee to import DNS names into ENS, but that would not be a desirable incentive.

As I outlined before, if the previous name owner got the majority of the premium auction revenue, people may well choose to register large numbers of names for short periods, in the hope that they get snapped up at premium prices when they expire, profiting them. For the price of 90 days registration ($0.25), you’d get a shot at a windfall when someone else picks up the name.

Clause 2 explicitly justifies this: without a renewal fee, speculation would run rampant. People would load up on names with the intention of selling them, rather than using them, as sitting on a portfolio of names would have no ongoing cost. We’ve seen this happen in multiple other systems, starting with Namecoin.

It is impossible to do this onchain.

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I understand the reason for renewal fees, I guess we’ll just never know what the reason for ENS receiving premium fees is… Why users have this obligation… And if it is actually fair… Or if it’s just because anybody besides ENS receiving premium fees is impossible to accomplish onchain… Or that actually you rent your .eth and ENS owns it, so ENS owes you nothing… I suppose users have this responsibility for the Public Good… That is why ownership of .eth names is not as absolute or inviolable as it could be.

Anybody already is able to get a shot at a windfall for the price of 90 days registration ($0.25) by registering large numbers of names for short periods, in the hope they get snapped up on the secondary market during the 90 day grace period. And nobody thinks this should be changed.

ENS was able to implement and take this fee. Excited to see how ownership will be infringed in the future even more as apparently anything within ENS’s power is justifiable… ‘as long as you dont do this the name is yours’… Thankfully many people deeply care about governing this protocol.

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The premium price makes the “race” for registration “fair” and I think it has been successful in that respect.

A side effect of ENS receiving premium fees allows the DAO to distribute neglected names at 0 net cost. There was some prior discussion about this.

Like gas fees, the premium could be burnt, but that only makes sense when there’s no clear way to allocate resources. ENS has a DAO and so far seems like a reasonable way to manage a vibrant community and fund future protocol improvements.

The premium could be used to buy back $ENS (which is then burnt) but that just seems like more complexity, weird games, and legal issues.

Funds collected through premium could be used to subsidize temporary perks or incentives, like registrations beyond a certain duration get 1 year free, or “renewal week”, or fund quests through various crypto exposure programs to increase awareness.

I disagree with allocating the premium fee to the previous owner as that introduces weird incentives. Additionally, you could just extend the name and sell it yourself.

I think that last point is really the crux of the issue: the official ENS registration app does not support a standard way to indicate that your name is for sale and/or that you’d be willing to sell/trade/etc.

I don’t think the manager should be a marketplace, but I think there’s some design space for name suggestions, “external availability”, similar names for sale, market place pricing, how to contact the owner, etc. that, if done tastefully, benefit everyone involved.

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Love Raffy but this still doesn’t justify the decision for me. The race stays the same whether ENS receives the premium fee or past owners. Yeah I remember the ENSFairy debate. How have they been doing? Personally I don’t think that giving ENS the ability to acquire names for free for some people justifies the people forgetting to renew etc. I do not know what weird incentives you are implying. Name ‘owners’ having the ability to sell their names also has some weird incentives I guess. Lets burn the proceeds. The ENS manager currently is already a marketplace for the dutch auction. Removing the favorites feature has not changed that, most premiums get registered there. It’s not like the short name auction on Opensea. Might be why DNS expiry works differently I guess.

In my opinion the premium should go to past owners if ENS receiving it does not prevent speculation but I understand now that people do not agree with that :man_shrugging:

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Just what are those incentives? It’s an interesting thought experiment and I think for purposes of this discussion it can be reduced to the following:

Would paying the premiums, in whole or in part, to the prior owner result in:

a) a greater number of additional registrations for speculative purposes; or

b) a greater number of speculative registrations being allowed to expire.

It would take some mental gymnastics for me to conclude a speculator that would otherwise not be willing to register a name would register a name to speculate on account they would be entitled to premium fees from the Dutch auction following expiration.

On the other hand I think there is sufficient data to suggest speculators would allow names to expire that they have already registered instead of continuing to renew them. There seems to be a suggestion that if an owner wanted to sell, then they should just do so before expiration. However, I believe there is data to show that often names are listed for sale before expiration but don’t sell, yet following expiration those same names will sell in the Dutch auction for a greater amount than the original owner had it listed.

I can give a specific example of a professional athlete I onboarded, wherein I paid 1.5ETH out of pocket + traded a 4 digit. For a time they added the .eth to their Twitter account and were #22 on the ETH leaderboard. However, the athlete decided to let the name expire but did attempt to sell it first without success. That name was sniped out of premium. The intent of the new buyer is clear, as it’s not the owner primary name nor has any other records set, and they sniped it for speculative purposes hoping they might one day sell it back to the famous athlete.

Though n=1 and ENS was better off having this athlete own their ENS and display the .eth on Twitter, under this set of facts the name was already registered for speculative purposes originally when I purchased it to onboard the athlete and following expiration it was once again registered (from premium) by a speculator looking to profit from the old owner. My instinct says the athlete should have been the recipient of the premium and been the beneficiary of the speculator looking to profit from the expiration of the athletes’ name but I’d also like to understand why the DAO is the rightful beneficiary of the premium and how this policy minimized any speculation. In either case, I think in this set of facts lies a smoking gun in terms of what the premium policy should rightfully be, specifically, if there is data to show that registrations from premium have historically been speculative (i.e. listed for sale, not made a primary name, no records set) than registrations by a legitimate end users then there is a strong argument the premium should go to the old owner rather than the DAO.

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The ownership lifecycle is clear: if you own the NFT (title) and can do anything you want with it as long as you satisfy the rules of the contract (pay renewal).

The premium is the byproduct of the process that fairly releases a name back into the pool of available names. TBH, I’d rather burn the premium than give it to the prior owner because that seems like a very poor allocation of resources and it’s at odds with the ownership rules.

The weird incentive (from rewarding prior owners with premium) is that putting names in premium is a perverted way to sell/advertise names through the manager app. This would reward min-duration registration spam.

Nothing prevents you (the owner) from placing a name into a premium-like auction. However, as I pointed out, the difference between a name in premium and a name you sell in this fashion, from the perspective of the manager app, is that the premium name is technically available and the owned name is not.

Vision has created a great ENS marketplace. The problem is that people go to the manager app to buy names, and they search and search until they find an available or affordable name in premium.

I’d rather explore new ideas which align both marketplaces and ENS itself, that can be integrated into the registration app w/o picking favorites, killing other marketplaces, or turning the app into a marketplace.

For example, the thing you want—rewarding prior owner with premium—can be emulated with a one-way holding contract. Unlike a marketplace, where you have the option to cancel, you must relinquish control of your name, including the fact it could go to zero, in exchange for the ability to collect the “premium”. However, why would ENS want to sell your name vs selling a new name?

The premium sales real estate is this thing:
image

I think there should be something that indicates your name is for sale and/or you’re willing to negotate. This could be as simple as changing your resolver to some CCIP server, which provides sales and contract information inline. Names in this state could have a different appearance. I don’t think this needs to actually show any price information. The text("url.sales") or something could be standard to link to your favorite marketplace.

Although a sale via this mechanism would not benefit ENS directly, matching users with names they actually want but didn’t know where “available” seems like a win to me.

I haven’t thought about this stuff much, so these are just rough ideas.

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To clarify I want end users, not speculators, to have names and I believe the policy should encourage that.

My post just offers a real situation and set of facts - or n=1 data point - where the current policy didn’t reduce speculation and resulted in the DAO being the beneficiary of the speculation. More importantly, the set of facts highlights how data can be used to drive the DAO policy and reduce speculation consistent with the intent Constitution.

In other words sometimes the data will show the premium registration was by an end user and I think it’s fair for the DAO to be the beneficiary, but when the data clearly shows the premium registration was speculative I’d rather the DAO not be the beneficiary. Obviously that can’t be known in advance and so again the policy itself should be driven by the publicly available data.

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